Introduction to Foreign Direct Investment:
All the foreign investments in India are carried out as per the FDI policy that has been laid down by the Government of India. Numerous channels have been allowed for the investment by the Government on the basis of the entity of the foreign national. This foreign investment symbolises the direct or indirect investments that are done by a company or an individual belonging to some other country. Some key points that can be highlighted in the Foreign Investment in Indian Company include:
Residents as well as non-residents of India can invest in Indian companies. When a non-resident invests in an Indian company, it is known as a direct foreign investment. Resident as well as non-resident investments form the investments made by the resident Indian entities. The instruments which can be used to invest in India include equity shares, convertible preference shares, convertible debentures, as well as other types of preference shares such as non-convertible shares, or external commercial borrowings.
Entry routes to be taken for investments in India
Investments can be made in the form of shares as per the Foreign Direct Investments scheme. It can also be made in the form of convertible debentures as well as fully convertible preference shares of an Indian company by non-residents via two routes namely:
- Automatic Route – The foreign investor does not require any approval from the Reserve Bank of India for the investment under this route.
- Government Route – As part of this route, the foreign investor needs to obtain an approval from the Government of India, Department of Economic Affairs, as well as the Ministry of Finance or Department of Industrial Policy and Promotion.
Who all can invest in India?
To be able to invest in India, the following conditions apply:
- Any non-resident can invest in India as per the foreign direct investment policy.
- NRIs staying in Nepal and Bhutan as well as the citizens of Bhutan and Nepal can invest in the Indian companies on a return basis.
- Other commercial borrowings which lie outside India and do not lie under the notice of the Reserve Bank of India can make fresh investments as per the FDI policy with the approval of Government of India provided the investment gets through. Also, in case of the automatic route, since no government approval is needed, the investment can easily go through.
- If FII invests in the capital of the Indian company under the scheme of Portfolio Investment, the individual holding of the FII is limited to 10 percent of the capital of the company. In addition to this, the aggregate limit of the FII investment too is limited to 24 percent of the total capital of the company.
Modes of payment for Investment in India
The Indian company which issues the convertible debentures under the Foreign Direct Investment Scheme to a person who is a resident outside India will receive the amount that is needed to be paid for such convertible debentures:
- Inward remittance via normal banking channels
- Debit to FCNR account of a person maintained with AD bank
- Conversion of royalty fee due for payment, import of capital goods by units in SEZ will be treated as consideration for the issuance of shares
- Conversion of import payables can be treated as consideration for the issuance of shares which contain the approval of FIPB.
The Reserve Bank of India may also allow an Indian company to refund or give shares for the amount of consideration that is received towards issuance of security in case this amount is outstanding beyond 180 days from the date of receipt.
Owing to its features and the numerous opportunities that it presents, it has become one of the best investment opportunities in India and worldwide. With the advancing opportunities, greater number of investments are being made in India.